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CRM Hack: Customer Tier and RFM Segmentation

A look at how to achieve personalization by combining customer tiers with recency, frequency, and monetary values

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Let’s talk about Customer Tier and RFM, or Recency, Frequency, Monetary – a known customer segmentation method in various industries.

There are many different ways to segment your customers into meaningful groups. However, chances are you may still be left with large groups that clump many different types of customers together.

Segmenting customers based on two or three attributes at once rather than separately, can provide your CRM marketing team with much more information. This method is better than just looking at each characteristic individually as it can assist you in providing more depth to the segment.

Take a look at the following example and decide who’s the better customer:

Customer A

Purchased 1x last year

Purchased 1 shirt valued at $600

Customer B

Purchased 6x last year

Purchased 6 shirts valued at $100 each = $600

Hmm, it sounds the same, right? With just this info, you can’t truly know who is the better customer from a monetary perspective, as these two customers would be categorized as the same.

However, there are very different KPIs for each customer:

Customer A’s Goal

To increase annual purchases

Customer B’s Goal

To grow the average order value

It’s a great example of how we can quickly achieve personalization by combining frequency and monetary values.

Using RFM Segmentation

Though you can separate customers to the following tiers: high frequency, mid-frequency, and low frequency – not all customers in each tier are the same.

For instance, take a high-frequency customer who made 12 purchases last year. You can further segment this customer using the following attributes to reach a much more granular segmentation level: Days Since Last Purchase, Number of Purchases Last Year, and Purchase Amount Last Year.

The critical point here is not to have more segments but always to consider the information you can derive from creating new segments. It’s simple, the more you know, the easier it’ll be to find your company’s most valuable customers and keep them engaged.

Watch the full video here:

Download a guide to advanced customer segmentation

Key Takeaway

To sum it up, segmenting your customers based on several attributes rather than just looking at the frequency or monetary values will improve and enhance your marketing personalization efforts.

This is just the tip of the iceberg! Feel free to reach out to Optimove’s Strategic Services team for more information.


Don’t miss out on our previous CRM hacks from Optimove experts:

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Yoni Barzilay

Yoni Barzilay is Optimove’s Director of Data Science, North America. He has a knack for finding creative solutions for extreme data challenges, and has led some of Optimove's biggest e-commerce onboarding projects. Yoni holds a BSc in Industrial Engineering and Management, specializing in Information Systems.